S.C : Whether the Tribunal was in law justified in allowing the assessee’s claim in respect of interest on the arrears of sales-tax in computing the assessee’s income for the year under consideration ?

Supreme Court Of India

Lachmandas Mathuradas vs. CIT

Section 37(1)

Asst. Year 1974-75

S.C. Agrawal & G.T. Nanavati, JJ.

Civil Appeal No. 3645 of 1983

16th January, 1997

Counsel Appeared

K.B. Rohatagi, for the Appellant : B. Krishnan Prasad, for the Respondent

ORDER

BY THE COURT :

This appeal arises out of IT Ref. No. 54 of 1978 wherein the Tribunal, Delhi Bench, had referred the following questions to the Allahabad High Court for opinion :

“1. Whether the Tribunal was in law justified in allowing the assessee’s claim in respect of interest on the arrears of sales-tax in computing the assessee’s income for the year under consideration ?

Whether the interest on the outstanding balance of sales-tax was an allowable deduction under the IT Act ?

Whether there was material on record justifying the Tribunal’s finding that the liability of Rs. 69,383 for damages had crystallised in the accounting period relevant to the assessment year under consideration ?

Whether the claim of the assessee for damages could be held to be an allowable deduction in computing the assessee’s income liable to assessment for the year under consideration ?

The Allahabad High Court by its impugned judgment dt. 28th Jan., 1980, has answered the said questions against the assessee and in favour of the Revenue. Hence this appeal.

2. While granting special leave to appeal the appeal has been confined to question Nos. 1 and 2 only. The High Court has proceeded on the basis that the interest on arrears of sales-tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench decision in Saraya Sugar Mills (P) Ltd. vs. CIT 1978 CTR (All)(FB) 329 : (1979) 116 ITR 387 (All) (FB) : TC 17R.797. The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engineering Works Ltd. vs. CIT (1984) 38 CTR (All)(FB) 107 : (1983) 144 ITR 732 (All)(FB) : TC 17R.794 wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 850/79 titled Saraya Sugar Mills (P) Ltd. vs. CIT decided on 29th Feb., 1996. In that view of the matter the appeal is allowed and the question Nos. 1 and 2 are answered in favour of the assessee and against the Revenue. No order as to costs.

[Citation : 254 ITR 799]

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